ORGANIZATION STRUCTURE: STRATEGIC
AND TACTICAL COMPENSATION ISSUES
Jayendra Rimal
INTRODUCTION TO COMPENSATION STRATEGY
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Support organizational mission and strategy through
compensation strategy and tactics that integrate major
organizational groups of employees.
It is necessary for organizational leaders to understand
how strategy and tactics interact and become integrated.
The compensation system must be transmitted in a manner
that is understood and accepted by all employees that they
are contributing to the success and the organization is
willing to share the revenues in an equitable manner.
SOME COMPENSATION STRATEGIES
Relating job worth to differences in job requirements
 Recognizing the worth and value of employee knowledge
and skills
 Rewarding employee contribution and results achieved
 Promoting continued employee acquisition and upgrading of
knowledge and skills
 Supporting team and work unit efforts
 Design compensation plans that compete with the market
 Aligning compensation of all employees with objectives and
goals of the organization
 Providing a compensation package that enhances current
lifestyles and provided long-term protection to employees
and their dependants.
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DEVELOPMENT OF AN ORGANIZATION
Establishing a Philosophy
Identifying the Mission
Developing Policy
Formulating Organizational
Strategy
Determining Goals and Objectives
Defining Work Unit Activities
Grouping Tasks into Jobs
DEVELOPMENT OF AN ORGANIZATION
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The Philosophy – Many do not have written ones but it describes
the values of the top management. Critical to organizational
success is the degree of congruence between member’s and
company vales.
Mission – Describes in value-laden terms what the organizations
hopes to accomplish in the long term and reasons for existence.
Policy – Broad guidelines for directing actions.
Strategy – This provides the foundation for future growth and
development of the organization. It has to be realistic.
Goals and Objectives – These are result oriented statements
that make the transition from strategic to tactical operations
through the most effective and efficient means.
Work Unit Activities – Necessary to develop unit level functional
statements. This helps in integrating objectives with that of the
units.
Worker Tasks – Specific individuals are assigned identified tasks,
duties and responsibilities.
EMPLOYEES – A CRITICAL RESOURCE
The quality and quantity of organizational output depends
on the skills, interest and effort of employees. Some
important relationships with respect to pay:
Pay
Satisfaction – Employees make decisions based on
comparison with others, both in and out of the
organization
 Job Satisfaction – Pay and job satisfaction, although
different, significantly influence each other.
Organizational Satisfaction – Some of the factors that
promote this are security in employment, fairness in
personnel decisions, accepting organizational philosophy
Satisfaction here means fulfillment of an obligation; is
individual based and is a dynamic process, not a thing.
CREATING AN ORGANIZATIONAL HIERARCHY
One approach to distributing rewards is to focus on the hierarchy – the
higher the level, the greater the responsibility and higher the reward.
Hierarchy is based on different levels within a company.
Board of directors, senior management, operations managers (senior, midlevel and first-level), sales, professional, administrators and operative
employees.
Unlike employees compensation for BOD consists of fees for board
meetings, annual retainer, acquisition of stock in company
 Senior managers comprise of CEO and other top executives.
Compensation of senior managers relates to that of the CEO
 Operating Managers – Middle hierarchy and wide range of pay with
hopes of promotion to senior manager level
 Sales Personnel – Responsible for sale of product or service. Five
methods of pay: salary, sales commission, combination, salary and bonus,
combination of salary, bonus and commission
 Professionals – Perform non-routine work requiring originality,
discretion, innovative abilities and analytic skills. Compensation
equivalent to middle level management or higher.
 Operative Employees – Those ate the lower rung. Starts from minimum.
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PAY RELATIONSHIP
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Pay Equity – fairness in pay is usually evaluated by asking
– “ How well does my pay compare with that other
employees of my unit and the organization”? But certain
jobs pay better than other jobs with organizations
differing in how much they pay they pay employees. This
is the market-based economy.
Pay Ratios – There must be a relationship between pay of
all employees from top to bottom. Ratios of lowest to
highest is 5:1; in the US it is much higher while in Nepal
it is very high in some industries.
ANY QUESTIONS?